98 ASSET ACCOUNTING - Berrigan Shire

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98

ASSET ACCOUNTING

Strategic Outcome: Good government

Date of Adoption: 19 November 2020 Minute Number: 279

Date for Review: 17 November 2021

Responsible Officer: Director Corporate Services

Document Control: Replaces and revokes the Asset Accounting Policy adopted 19 June 2019

Delivery Program Link: 2.1.3.1 Coordinate Council investments, financial management, financial operations and processing.

1. POLICY STATEMENT

Council has an obligation to ensure that all assets are managed efficiently in accordance with

the Council’s Asset Management Plan. This policy provides a framework to regulate and guide

the identification, recognition and measurement of non-current assets that provide future

economic benefit to Berrigan Shire Council and the community.

This policy outlines the mandatory asset management accounting requirements to maintain

compliance with the Local Government Act and Australian Accounting Standards.

2. PURPOSE

The purpose of this policy is to provide guidance, clarity and consistency regarding the

treatment of capital expenditure, depreciation, revaluations, disposals and acquisitions which

will provide greater understanding and accuracy of Council’s capital requirements.

3. SCOPE

This policy applies to all non-current infrastructure, property, plant and equipment (IPPE)

recognised in Council, as well as intangible assets.

This policy generally impacts upon all Council employees, volunteers and contractors.

Specifically, the policy is directly applicable to Budget Centre Managers and Council officers

who have asset management and asset accounting responsibilities.

4. DEFINITIONS

Accumulated Depreciation the total of the entire annual depreciable amount that has been

applied to the asset since the asset has been used by the entity

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Asset A resource which is controlled as a result of past events and from

which future economic benefits are expected to flow to the entity.

Asset Class: The categories of assets used by the Council for asset management

and accounting purposes, such as land, buildings, facilities,

infrastructure assets, plant and equipment, furniture and fittings.

Capitalisation threshold Minimum amount whereby the value of a non-current asset must

be capitalised whereas, below this cost the value is expensed.

Capital Works in Progress Capital Works not completed within the financial year and needs

to be carried in to the next financial year.

Carrying amount The amount at which an asset is recognised after deducting any

accumulated depreciation and accumulated impairment losses i.e.

it’s written down value (WDV)

Contributed asset An asset that is transferred at below or no cost, usually by way of

contracts with developers, through government transfer

arrangements or as a result of a bequest.

Control The potential to contribute, directly or indirectly, to the delivery of

relevant goods or services in accordance with the entity’s

objectives of a particular volume, quantity and quality to its

beneficiaries including the ability to restrict access of others to

those benefits.

Cost The amount of cash or cash equivalent paid or the fair value of any

other consideration given to acquire an asset at the time of its

acquisition or construction.

Council Berrigan Shire Council (BSC)

Decommissioning The removal, demolition or elimination of an asset’s service

potential, resulting from a specific management decision.

Depreciable amount The cost of an asset, or other amount substituted for cost, less its

residual value.

Depreciation: The systematic allocation of the depreciable amount of an asset

over its useful life.

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Fair Value The price that would be received to sell an asset or paid to transfer

a liability in an orderly transaction between market participants at

the measurement date. For infrastructure assets, replacement

cost represents fair value.

Future economic benefit (or service potential): The potential to contribute, directly or

indirectly, the delivery of goods and services in accordance with

Council’s objectives of a particular volume, quantity or quality to

its beneficiaries. It includes social, environmental, financial and

governance benefits.

Impairment loss: The amount by which the carrying amount of an asset or a cash-

generating unit exceeds its recoverable amount.

Intangible asset An identifiable non-monetary asset without physical substance.

Maintenance: Periodic expenditure required to ensure that the asset lasts as long

as it is expected to last (useful life) and that it provides and

continues to provide future economic benefits. Maintenance can

also include expenditure on non-current assets that do not meet

the capitalisation criteria.

Materiality: As defined by AASB 1031 is ‘Information is material, if its omission,

misstatement or non-disclosure has the potential, individually or

collectively to:

Influence the economic decisions of users taken on the basis

of financial statements or

Affect the discharge of accountability by the management or

governing body of the entity.’

Network assets A chain of interconnected but dissimilar assets connected for the

provision of the one simultaneous service. Individually, these

assets are below capitalisation thresholds, but require recognition

in the financial statements due to their collective value.

Non-current asset: An asset held for use rather than exchange and which provides an

economic benefit for a period greater than 12 months.

Pattern of consumption The pattern in which the asset’s future economic benefits are

expected to be consumed by Council. This maybe constant,

increasing, decreasing or variable.

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Practically completed Projects where the majority of the project is practically complete,

or the core asset is placed in service and commissioned.

Renewal: Expenditure that exceeds the useful life or increases the service

potential of the asset beyond its current condition but not

exceeding its current maximum design level (for example,

resealing of a road).

Replacement cost The cost of replacing the total potential future economic benefit

of the existing asset using either reproduction or modern

equivalents after taking into account any differences in the utility

of the existing asset and the modern equivalent.

Residual value The estimated amount that an entity would currently obtain from

disposal of the asset, after deducting the estimated costs of

disposal, if the asset were already of the age and in the condition

expected at the end of its useful life.

Retention costs Costs due to the contractor withheld by the Council for a period of

time as stipulated in the construction contract.

Upgrade: Expenditure that exceeds the useful life or increases the service

potential of the asset beyond its current maximum design level –

for example, widening a road to add an extra traffic lane or

improve safety.

Useful life The period over which an asset is expected to be available for use

by Council; or the number of production or similar units expected

to be obtained from the asset by Council.

Valuation The process of determining the value of an asset.

Written down value Refer to Carrying amount above

5. POLICY IMPLEMENTATION

5.1 Responsibilities

Position Directorate Responsibility

Mayor Council To lead councillors in their understanding of and compliance

with this policy, its notes and guidelines.

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Position Directorate Responsibility

General

Manager Executive

To lead staff (directly and through delegated authority) in

their understanding of, and compliance with, this policy and

guidelines.

Budget

Centre

Managers

All

Directorates

The Budget Centre Managers must ensure that the asset

custodians comply with this policy.

All other

staff and

committees

personnel

(Asset

custodians)

All

Directorates

Staff and committee personnel are custodians of the assets

and may be users of the asset as well. They are primarily in

charge of the asset and responsible for its physical presence

and maintenance.

Any change to the asset through construction, addition,

disposal, decommissioning, transfer and renewal, upgrade or

an action which changes its value as held in Council’s books is

to be communicated to the Finance Manager.

Asset Custodians are personnel who are delegated the

responsibility by the Budget centre managers to maintain the

inventory of the assets in their area.

The Asset Custodians still hold the primary responsibility for

the asset, including to inform the budget centre managers of

costs incurred on any asset whether it is through construction,

addition, disposal, decommissioning, transfer, renewal,

upgrade or an action which changes its value as held in the

Council’s books.

Finance

Manager

Corporate

Services

Responsible for ensuring that all Council’s assets are

accounted for in accordance with applicable Australian

Accounting Standards and other relevant legislation.

5.2 Recognition

5.2.1 Criteria

Council will recognise a non-current asset if the following is satisfied:

a) It is probable that future economic benefits associated with the item will flow to the

entity; and

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b) The cost of the item can be measured reliably;

c) The item has physical substance;

d) The item is not held for sale and is expected to be used by the entity for more than 12

months;

e) Council has control over the asset

f) The cost exceeds the recognition threshold set by Council

All non-current assets are initially recognised at cost when it exceeds the recognition threshold,

with the exception of network assets.

Where an asset is constructed the cost will be capitalised in the year the asset is financially

complete, or at comprehensive revaluation whichever occurs first

5.2.2 Cost

The cost of a non-current asset comprises:

a) Its purchase price, including import duties and non-refundable purchase taxes, after

deducting trade discounts and rebates plus costs incidental to the acquisition, including

architects’ fees and engineering design fees and all other planning costs incurred

b) Any costs directly attributable to bringing the asset to the location and condition

necessary for it to be capable of operating in the manner intended by management.

These include:

i. Costs of employee benefits (as defined in AASB119 Employee Benefits) arising

directly from the construction or acquisition of the asset

ii. Costs of site preparation

iii. Initial delivery and handling costs

iv. Installation and assembly costs

v. Costs of testing whether the asset is functioning properly, after deducting the

net proceeds from selling any items produced while bringing the asset to that

location and condition (such as samples produced when testing equipment);

and

vi. Professional fees

c) The initial estimate of the costs of dismantling and removing the item and restoring the

site on which it is located, the obligation for which an entity incurs either when the item

is acquired or as a consequence of having used the item during a particular period for

purposes other than to produce inventories during that period.

Purchase costs that are to be excluded from the cost of the non-current asset are:

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a) Costs of opening a new facility;

b) Costs of introducing a new product or service (including costs of advertising and

promotional activities);

c) Costs of conducting business in a new location or with a new class of customer

(including costs of staff training); and

d) Administration and other general overhead costs.

Costs on assets incurred after initial recognition are to be capitalised whenever the associated

work either renews, extends or upgrades the asset’s completed or underlying service potential.

Notwithstanding, where an asset is acquired at no cost, or for a nominal cost, such as developer

and other contributed assets, the cost is its fair value as at date of acquisition. Where an asset

is contributed/donated by a developer it is recognised when the Council assumes responsibility

for the asset.

5.2.3 Network assets

A network is a grouping of multiple assets that individually fall below the capitalisation

threshold but as a whole is material in value. These assets perform a whole service and require

recognition in the financial statements

5.2.4 Network assets

The acquisition of minor assets under the recognition thresholds is treated as an expense and

is recorded in an Attractive Items Register. All departments within the Council are responsible

for maintaining their own Attractive Items Register which is subject to periodic internal and

external audit.

5.2.5 Intangible assets

Where the asset does not have physical substance but meets other criteria it will be recorded

as an intangible asset.

5.2.6 Materiality

As guidance in considering materiality thresholds, the following are to be used:

a) An amount equal to or greater than 10% of the appropriate base may be presumed to be material;

b) An amount equal to or less than 5% may be presumed to be not material; and c) An amount between 5% and 10% requires judgement.

The asset recognition thresholds that apply to each asset class are detailed in Appendix 1.

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5.3 Valuation

All Council assets that qualify for recognition are to be initially measured at cost. However,

where an asset is acquired at no cost or for nominal consideration, cost is determined as fair

value at the date of acquisition. Fair value is deemed to be either:

a) Market Value if there is market evidence, or

b) Depreciated Current replacement cost if there is no market evidence

Where an asset was acquired in prior financial years and has yet to be recorded in Councils

financial asset register, the asset is to be brought to account at the fair value as at the date of

recognition.

The valuation method applicable to each Asset Class is detailed in Appendix 1

5.4 Renewal/Upgrade/Improvement

After initial recognition of all non-current assets at cost, assets are maintained to their

optimum service potential through annual capital programs. Each year capital programs are

budgeted, and the asset custodians will have their inputs for each asset classes.

5.4.1 Treatments

Based on the asset conditions, the use or consumption of assets and service potential, projects

will be budgeted. This will include renewals, upgrades or improvements to the assets.

Renewals - Re-establishing an existing asset’s service potential; required once an asset’s

condition degrades to the point the related service can no longer be adequately

provided.

Upgrade - Enhancement to existing assets to provide a higher level of service from the

current level of service.

Improvement - Improve an existing assets condition from the current condition or service

potential which will then improve the useful life and remaining useful life.

A similar accounting process will be carried out for the above three capital treatments to the

assets. During capitalisation process the relevant asset will be added with the actual capital

sent and the condition will be improved based on the in-house engineer’s condition

assessment.

5.4.2 Capitalisation

Capital expenditure on existing assets can be capitalised when the following criteria is met:

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a) The amount exceeds the asset recognition threshold; and

b) ONE of the following applies:

i. The resulting asset provides a higher level of service (increase of service

capacity or service quality), an upgrade; or

ii. The expenditure results in an overall cost saving; or

iii. The expenditure extends the life of the resulting asset beyond the original

expectation, a renewal.

Expenditure that does not meet the above classification is treated as an expense in the financial

statements

5.5 Revaluation

All non-current assets subject to a revaluation process in accordance with AASB116 are to be

revalued at Fair Value. The Gross Revaluation method is to be applied, whereby any

accumulated depreciation at the date of revaluation is restated proportionally to the change

in the asset’s gross carrying amount. With the exception of assets that remain valued at cost,

a full revaluation is undertaken every three to five years.

Assets will be valued where applicable taking into account economic obsolescence, surplus

capacity and asset optimisation.

An interim revaluation using indices developed via a desktop approach is to be undertaken at

financial year-end for an asset class subject to regular revaluations whenever there has been a

material movement in replacement cost (or market value, where applicable) since the last

comprehensive revaluation.

If the carrying amount of a class of assets decreased as a result of revaluation, the net

revaluation decrease shall be recognised in profit or loss

5.6 Depreciation

The straight–line method is adopted by Council to reflect patterns of consumption for all

noncurrent assets, other than parcels of land, which are not subject to depreciation or

amortisation.

Depreciation and amortisation parameters (remaining life, asset condition, residual value), are

to be reviewed at least annually to ensure currency for end of financial year reporting.

5.7 Impairment

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Where the carrying amount of an asset is found to exceed the recoverable amount the asset

is to be written down to the recoverable amount and an impairment loss recorded. The

impairment loss will be recognised immediately as an expense, unless the asset class is carried

at a revalued amount. In this circumstance, any impairment losses shall be treated as a

revaluation decrease in accordance to AASB 136 Impairment of Assets to the extent it reverses

any previous revaluation increment.

Council is obligated to assess at each reporting date whether any assets are impaired. The

indicators of impairment include:

a) Economic performance.

b) Obsolescence by design.

c) Significant changes to its primary use.

All assets are to be reviewed annually for impairment

5.8 Work in progress

Capital work-in-progress is to be disclosed as a separate category for financial reporting

purposes, at accumulated cost.

Work in progress balances are to be reviewed monthly to ensure completed projects are

brought to account as assets within a timely manner and any operational costs are expensed

accordingly.

5.9 Disposal

Valuable Non-Current Assets may be disposed as per Councils Disposal Policy.

When Council resolves to sell a non-current asset and the disposal is likely to occur within 12

months, the asset is to be classified as ‘Held for Sale’ in the Current Assets. The valuation of

such as assets will be the lower of carrying value in the asset register as at the date of resolution

or fair value less costs to sell if the carrying amount will be recovered principally through sale

transactions. Assets held for sale are to be reviewed each end of financial year. If the sale is no

longer occurring within 12 months then the asset is to be reclassified back to non-current

assets

Assets are to be removed from Council asset registers on disposal, trade-in, retirement,

decommissioning, abandonment, confirmation of any theft or loss or when it is withdrawn

from use and no further economic benefits are expected from the asset.

5.10 Disclosures

Council shall disclose the following on non-current assets within the financial statements:

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a) Measurement basis used for determining gross carrying amount;

b) Capitalisation thresholds for asset recognition;

c) Depreciation/amortisation methods used;

d) Useful lives or the depreciation/amortisation rates used;

e) For each asset class, the gross carrying amount and the accumulated

depreciation/amortisation (aggregated with accumulated impairment losses) at the

beginning and end of the period; and

f) For each asset class a reconciliation of the carrying amount at the beginning and end

of the period showing:

i. additions

ii. transfers between asset classes

iii. assets classified as held for sale

iv. disposals

v. increases or decreases from revaluations

vi. impairment losses recognised

vii. depreciation

Details of any revaluations including the valuer’s name, type of revaluation (full revaluation or

interim revaluation), date of effect and the financial impact (both for gross value and

accumulated depreciation).

Disclosures within the financial statements in regards to fair value are outlined at Appendix 2.

5.11 Review

This policy will be reviewed when any of the following occur:

a) As required by legislation.

b) The related documents are amended or replaced.

c) As determined from time to time by a resolution of Council

6. RELATED LEGISLATION, POLICIES AND STRATEGIES

6.1 Legislation

• Local Government Act 1993 (NSW)

• Local Government (General) Regulation 2005 (NSW)

• OLG Code of Accounting Practice and Financial Reporting circulars

6.2 Australian Accounting Standards

AASB 5 Non-current Assets Held for Sale and Discontinued Operations

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AASB 13 Fair Value Measurement

AASB 101 Presentation of Financial Statements

AASB 108 Accounting Policies, Change in Accounting Estimates and Errors

AASB 116 Property, Plant and Equipment

AASB 16 Leases

AASB 123 Borrowing Costs

AASB 136 Impairment of Assets

AASB 137 Provisions, Contingent Liabilities and Contingent Assets

AASB 138 Intangible Assets

AASB 140 Investment Property

AASB 1041 Revaluation of Non-Current Assets

AASB 1031 Materiality

AASB 1051 Land Under Roads

AASB 1049 Whole of Government and General Government Sector Reporting

SAC4 Statement of Accounting Concepts – Controlled Assets

6.3 Industry guidelines

IPWEA’s Australian Infrastructure Financial Management Guidelines

CPA Guide to Valuation and Depreciation for Public and Not-for-profit sectors under

AASB Accounting Standards

NSW Treasury TPP 14-01 Accounting Policy: Valuation of Physical Non-Current Assets

at Fair Value

6.4 Industry guidelines

• Disposal Policy

• Asset Management Policy

• Capital Works on Community Facilities Policy

• Contributory Footpath and Kerb and Gutter Schemes

• Legislative Compliance Policy

• Procurement and Disposal Policy

• Risk Management Policy & Framework

• Tender Policy

• Accounting Policy

• Berrigan Shire Council Asset Management Plans

• All Other Integrated Planning and Reporting documentation

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APPENDIX 1- ASSET RECOGNITION THRESHOLDS

Asset Class Asset

Category

Examples Asset Recognition Threshold

Useful life (Years)

Measurement Model

Valuation Approach

Capital Works in Progress All N/A At Cost N/A

Plant and Equipment

Plant &

Equipment

Major plant (graders, loaders, etc.),

fleet vehicles (cars, utes, etc.) and

minor plant (chainsaws, mowers etc.)

>$2,000 5-15 Historical Cost

Cost approach –

depreciated historical

cost

Office

Equipment

IT Hardware, printing devices, Telephone equipment, network devices, electronic equipment

>$2,000 4-10 Historical Cost Cost approach – depreciated historical cost

Furniture &

Fittings Indoor furniture >$2,000 10-20 Historical Cost

Cost approach – depreciated historical cost

Land*

Operational

Land under Council offices, depots,

libraries, water and sewer treatment

plants etc.

All N/A Fair Value Market Value

Community Land under parks, recreation

reserves, public halls etc. All N/A Fair Value Market Value

Land Under Roads – acquired

since 01/07/2008 All N/A Fair Value

Cost approach – depreciated historical cost

*Minor land parcels (less than 100m2 or less than 3m in width) have no market value and possess limited or negligible service potential. Due to materiality these minor land parcels are recorded in Council’s financial asset register at nominal value.

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Asset Class Asset

Category


Useful life (Years)

Measurement Model

Valuation Approach

Land

Improvements

- depreciation

Activity Area Car parks, netball and tennis courts,

fences etc. >$5,000 80 Historical Cost N/A

Infrastructure:

Buildings

Non Specialised / Specialised

Replacement of whole components such as roof, wall, door, floor coverings, bathrooms, kitchens, security systems, electrical systems, air conditioners and elevators

>$10,000 20-100 Fair Value Market Value and Historical cost

Transport

Roads

including Kerb

& Channels,

Carparks,

Runways &

Taxiways

Formation, pavement, surface, kerb & gutter, crash barrier, road island

>$10,000 20-60 Fair Value Cost approach and Current Replacement cost

Bridges &

Culverts Deck, abutment, substructure >$10,000 50-100 Fair Value

Current Replacement cost

Footpaths Pathway, cycleway, footbridge

>$10,000 40 Fair Value

Current Replacement cost

Bulk

Earthworks

(non-

depreciable)

Formations / Levee banks >$10,000 20 Fair Value Historical cost / current replacement cost

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Asset Class Asset

Category


Useful life (Years)

Measurement Model

Valuation Approach

Stormwater Drainage

Stormwater

Drainage

Culverts, channels, detention basins, headwalls, pipes, pits, flood warning system

>$10,000 80-100 Fair Value Current Replacement cost

Water Infrastructure

Pump stations Mechanical and electrical components, civil structures

>$10,000 60-90 Fair Value

Current replacement Cost Unit Rate / Condition based

Water mains Pipework >$10,000 70-80 Fair Value Current replacement Cost

Water

Ancillary Telemetry, monitoring >$10,000 15-20 Fair Value

Current replacement Cost

Treatment

plant Mechanical and electrical components, civil structures

>$10,000 10-100 Fair Value Current replacement Cost

Water

Reservoir

Mechanical and electrical components, pipework, roofs, structures


Sewer Infrastructure

Sewer/ Effluent Pump stations

Mechanical and electrical components, civil structures


Sewer/Effluen

t mains Pipework >$10,000 30-50 Fair Value


Sewer

Ancillary Monitoring, telemetry >$10,000 10-100 Fair Value


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Asset Class Asset

Category


Useful life (Years)

Measurement Model

Valuation Approach

Sewer/ Effluent

Treatment Plant Mechanical and electrical components, civil structures


Swimming Pools Pool shell, tiling >$5,000 50 Fair Value Current replacement

Cost

Other Open Space / recreational

Playground equipment, boating

facility, fences, gates, outdoor

furniture, lighting, barbeques, bike

racks, stairs, shelters

>$5,000 20 Fair Value Current replacement

Cost

Other Assets:

Heritage Mosaics, tapestries other heritage items

All 50-100 Historical Cost Cost Approach

Library books Book collection All 50 Historical Cost Cost Approach

Intangible Software Includes both internally generated and externally supplied.

>$5,000 3-15 Historical cost N/A

Other Artwork, artefacts, flagpoles >$2,000 5-100 Historical Cost N/A

Reinstatement, rehabilitation and restoration assets

Tip assets All 25-80 Historical cost N/A

Quarry assets All 25-80 Historical cost N/A

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APPENDIX 2- FAIR VALUE FINANCIAL STATEMENT DISCLOSURES

Level of

Input

Disclosure dependent upon Level of Valuation Input

1

2

3

√ √ √

The amounts of any transfers between Level 1 and Level 2 of the fair value

hierarchy, the reasons for those transfers and Council’s policy for determining

when transfers between levels are deemed to have occurred. Transfers into

each level shall be disclosed and discussed separately from transfers out of each

level.

√ √

A description of the valuation technique(s) and the inputs used in the fair value

measurement. If there has been a change in valuation technique (e.g. changing

from a market approach to an income approach or the use of an additional

valuation technique), Council shall disclose that change and the reason(s) for

making it.

√ The effect of the measurements on profit or loss or other comprehensive

income for the period.

√

A reconciliation from the opening balances to the closing balances, disclosing

separately changes during the period attributable to the following:

(i) total gains or losses for the period recognised in profit or loss (at line

item level)

(ii) total gains or losses for the period recognised in other comprehensive

income (at line item level)

(iii) purchases, sales, issues and settlements

(iv) the amounts of any transfers into or out of Level 3, the reasons for

those transfers and the entity’s policy for determining when transfers

between levels are deemed to have occurred. Transfers into Level 3 shall

be disclosed and discussed separately from transfers out of Level 3.

√ A description of the valuation processes used by Council.

√

If the highest and best use of an asset differs from its current use, disclose that

fact and why the asset is being used in a manner that differs from its highest

and best use.

√

If the highest and best use of an asset differs from its current use, disclose that

fact and why the asset is being used in a manner that differs from its highest

and best use.

Documents

98 ASSET ACCOUNTING - Berrigan Shire